Foreign banks to be more cautious in Saudi: BNP

Dubai, September 8, 2009

Foreign banks will become more cautious when lending to Saudi family businesses, following the trouble at two large conglomerates that shook confidence in the region, an executive at France's BNP Paribas said.

Privately-owned firms Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB), are restructuring their debt in a complex, multi-billion dollar process that involves local and international banks, as well as legal and other financial stakeholders.

'There will be an impact on the appetite of the banking sector to lend in Saudi Arabia,' Jean-Christophe Durand, chief executive of BNP Paribas in the Gulf region, told reporters in Dubai late yesterday (September 7).

Saudi Arabia, the world's largest oil exporter, has suffered a reputational blow, as bankers wrestle with the potential ramifications from the groups' problems.

Analysts have said there could be more corporate defaults, making banks more reluctant to lend to privately-owned companies.

The French banking giant is one of the region's biggest players in fixed-income and project finance and is active in Saudi Arabia.

It is among several regional and international banks exposed to the two conglomerates. Durand did not provide details of the bank's exposure.

The legal system in the region is also being tested, as every banker is eyeing how the local authorities react to the fallout at Saad and Algosaibi, Durand said.

The two firms are embroiled in a legal tug of war, with some bankers claiming 120 banks are affected for a total of $22 billion.

It also underlines the lack of transparency in the region, Durand said.

'One of the shortcomings is communication, it has been scarce, not to say insufficient,' he said.

But despite the heightened sense of caution, foreign investors still see Saudi Arabia as a lucrative market.

'Saudi is vast, it has major infrastructure, industry projects coming,' Durand said.

Saudi Arabia last year pledged it would invest around $400 billion in the next five years, mainly to improve infrastructure in the country whose population of around 25 million people is growing rapidly. – Reuters